Wednesday, January 27, 2010

TracFone Is Now New York’s Largest Telephone Lifeline Provider

According to data compiled by the Universal Service Administrative Company ("USAC"), the FCC's administrator of universal service funds and programs, the SafeLink service offered by TracFone Wireless now has more Lifeline discount telephone service customers in New York State than Verizon, even though it didn't begin offering the service and receiving reimbursement until April 2009.

Carriers that wish to offer Lifeline must be designated as an "Eligible Telecommunications Carrier" ("ETC") to receive reimbursement from the federal Universal Service Fund ("USF") for providing the discounted service. Traditional landline local exchange carriers apply to their state utility commissions and agree to certain requirements in exchange for being permitted to draw from the federal USF and any state fund to offset the bill reduction assistance for low-income customers.

In New York, the state universal service fund is called the Targeted Accessibility Fund ("TAF"), which is supported by a percentage of each provider's intrastate revenues. This contribution factor is currently hovering at just above 1%. The federal USF is supported as a "tax" on interstate and international calling and is paid directly by end users. The federal USF percentage is now over 14%, the largest portion of which is used to reduce charges in high cost areas. When a wireless provider seeks ETC status, it must go to the FCC for designation. Currently, no wireless provider has sought authorization for supplemental Lifeline assistance reimbursement from TAF in New York State.

On the federal side, there are three levels, or tiers, of Lifeline support from the USF (a fourth tier exists for additional savings for service on tribal lands). Tier I covers the $6.50 subscriber line charge, Tier II provides $1.75 in support where the state has its own Lifeline program (such as NY), and Tier III provides an additional $1.75 in support, where permitted. Most ETCs designated by the New York State Public Service Commission ("PSC") receive the full $10 in federal support, plus additional assistance through TAF. However, because not all ETCs in NY receive full Tier III support, according to an FCC report (see Table 2.3 on page 2-9), as of March 31, 2008, the average federal USF support was about $9.59 per month .

When USAC published its latest complete monthly data, covering December 2009, Verizon received $2,609,216 in federal support. When divided by the $9.59 average reimbursement per subscriber, this works out to be about 272,077 Lifeline customers in December in NY. Meanwhile, in that same month, TracFone received $3,509,806, which is consistent with about 365,986 Lifeline customers. These same USAC spreadsheets indicate that among all landline providers, there were approximately 298,854 Lifeline customers in NY last year, which is very close to the 309,000 estimated by the PSC for 2008. When taken as a whole, there were about 644,000 Lifeline customers in NY at the end of 2009, including those who subscribe to TracFone's service. Keep in mind that as recently as April 2009, TracFone's Lifeline reimbursements were at a level consistent with only about 22,600 Lifeline customers in NY. Thus, in less than one year, TracFone appears to have increased its Lifeline assistance reimbursement (and customers) more than ten-fold.

The highest total of Lifeline customers in New York State was achieved in 1996, with over 750,000 customers.

TracFone is a wireless reseller and is not subject to the state's consumer protections or service quality requirements. It provides 68 minutes a month with its service (including a free phone), which includes both incoming and outgoing calls. Additional minutes cost about $20 for an extra 60 minutes. These rates do not seem to have hindered its ability to add subscribers at lightning speed.

While 644,000 Lifeline customers across the state is a significant improvement, the latest figures from the state Office for Temporary and Disability Assistance show(at Table 16) that there are over 1.3 million households which receive Food Stamps, one of the primary eligibility criteria for Lifeline. The universe of eligible households for Lifeline is likely even higher (some families may receive Medicaid, for example, and not Food Stamps), so the 1.3 million is, thus, a conservative estimate. Using these figures which understate the number of eligible households, New York is still less than half way to reaching all eligible Lifeline families. With the entry of Virgin Mobile's Assurance Wireless Lifeline offering (and their free phone and 200 minutes a month), there appears to be some competition heating up for offering Lifeline in NY. This is encouraging news for New York's low income population, as the Lifeline program has languished in recent years .

Lou Manuta

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